Americans living in Canada have already found themselves in the sights of the Internal Revenue Service, but a Canadian tax expert is warning that they should pay particular attention their use of investment vehicles such as the Tax Free Savings Account.

[np_storybar title=”The double jeopardy of a U.S. citizen” link=”http://business.financialpost.com/2012/06/09/the-double-jeopardy-of-a-u-s-citizen/”%5D Unlike most countries in the world, the U.S. requires its citizens to file a U.S. tax return reporting worldwide income no matter where that U.S. citizen resides. This is in contrast to nearly every other country’s tax system, including Canada’s, which taxes based on residency.

Dick Pound, a lawyer specializing in tax issues at law firm Stikeman Elliott LLP, says there is a chance U.S. citizens who hold Canadian TFSAs will find that, unlike in Canada, the income earned is taxable in the United States.

TFSAs are among a group of investment vehicles created in Canada to promote savings.

“It’s actually likely that the U.S. will take the view that the income earned in the TFSA will be taxable on a current basis, unlike in Canada where there will be no tax, which may make this arrangement unattractive to U.S. citizens in Canada,” Mr. Pound said in an interview this week.

In a newly published resource called Tax Guide for American Citizens in Canada, which Mr. Pound co-authored with New York-based lawyer Max Reed, he says that the U.S. and the IRS have provided no guidance regarding the treatment of common investment vehicles such as the TFSA.

The authors note that the investment vehicle was not designed to shelter income from U.S. tax.

Before publishing the guide, Mr. Pound wrote a letter to the IRS seeking “clarification” on the intended tax treatment for TFSAs and other investment vehicles such as Registered Education Savings Plans. There has been no response, Mr. Pound said this week.

In the guide, Mr. Pound and Mr. Reed suggest that Americans living in Canada avoid tax-free savings accounts and registered education savings plans. If they do use the investment vehicles, they are urged to have them held by a non-American spouse or to report and pay tax on all income earned.

“In cases where the rules are ambiguous, full disclosure is best,” the tax guide says, urging U.S. citizens to write the IRS informing them of their use of the Canadian investment vehicles.

An IRS crackdown that began in 2011 promised harsh penalties for expatriates who neglected to file multi-form U.S. tax returns.